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On Thursday, March 1st, Senator Bingaman, Chairman of the Senate Energy Committee, introduced the Clean Energy Standard Act of 2012. “Clean energy” is defined in this legislation as electricity generated from renewable energy resources, combined heat and power, natural gas, nuclear, and coal at a facility using carbon capture and storage technology. The clean energy standard (CES) begins at 24% in 2015 and increases by 3% a year to 84% in 2035.

The CES only applies to large utilities, about 8% of utilities in 2015 and 13% in 2025. The majority of municipal and cooperative utilities are exempt. Utilities demonstrate compliance through clean energy credits, which are awarded based on the amount of carbon emissions per MWh of electricity generated. Failure to produce the necessary clean energy credits or pay the alternative compliance payment results in civil penalties equal to 200% of the alternative compliance payment for each kWh sold in violation of the standard.

The CES is unlikely to gain much traction in Congress this election year, but Bingaman, who is retiring at the end of the year, wanted to introduce it to start a conversation on how the country can shift to cleaner sources of energy.

Personally, I think this is a very well thought-out bill to support clean energy. It doesn't have a "black and white" line, but rather gives partial credit for generators that emit some carbon, provided that it's cleaner than the best modern coal plants. So, if it's cheaper for a utility to buy twice as much "half credit" natural-gas-fired generation, compared to buying all of its CES requirement from zero-carbon sources, that's allowed. It's a backdoor way of creating a carbon market and, therefore, a carbon price.

Unfortunately, it applies only to electric generation, rather than to all primary energy sources. Hence, this will implicitly increase the cost of electricity relative to gasoline.

How does this tie into administration efforts to force retirement of old coal fired plants?

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While I disagree with your characterization that the administration has an agenda to force retirement of old coal plants, this bill does slowly tilt the table against coal and oil plants without carbon capture. All generating sources that emit more carbon than the benchmark count as zero credits, no matter how much they emit. Sources cleaner than the benchmark earn credits based on their ability to come in below the benchmark. The benchmark is set at the level of the best supercritical coal plants, so all coal and oil plants are essentially on even footing.

Each year starting in 2015, large utilities will need to show that they Clean Energy Credits equal to a certain percentage of served load, net of generation from pre-1992 nukes and hydro. If a utility has extra credits, they can sell them to another utility. Each year the required percentage increases, and so the trade value of a Clean Energy Credit rises. The important point is that the bill is completely neutral as to the technology a utility chooses to reduce its carbon emissions. If generating 20 GWh from natural gas units is more cost effective generating 10 GWh from wind, then the natural gas units will win out.

There's a long-term incentive here, though, to preferentially invest in zero- or near-zero-carbon sources. Although the 24% requirement of 2015 is a pretty easy mark to hit, the 84% mark in 2035 is not. An all-gas approach can see you through for a decade perhaps, but at some point you need to deploy lower-carbon sources. Again, the bill is neutral as to technology: any class of renewable, nuclear, carbon capture-and-sequestration; any of these will work. It's up to markets to choose the winning technologies.

Thanks, Robert. Maybe I chose my words poorly. I probably shouldn't have said "retire." I was referring to the EPA regulations on mercury emissions. The retire word is one that some of my friends in industry have used. It's amazing how we fall into the language that people use to try and frame an issue. Thanks for calling me out on that.

Robert, correct my interpretation, but it seems to be a side-run into having a carbon tax? I don't get the biomass 'exception' since biomass probably won't ever be viable from the carbon emissions perspective. I really like the gradual imposition, I don't like exempting smaller producers. Seems the line should be significantly moved there. Muni and coops seems to already have a market advantage in a lot of places.

I'm not fond of ignoring other upstream costs, since NG (via fracking, until it's reasonably strictly regulated) and coal have very high environmental destructive costs for obtaining, but it does seem to be a start. Coal, in particular, seems to have hung around far, far longer than it should have given the environmental costs of obtaining it, much less burning it.

I also get the Hawaii exemption, but Alaska? That's hard to take.

An overall improvement, and impressive given the hate-to-do-anything-constructive mentality pervading the capitol these days. Wish it could be better, but I'll take improvement over the current status quo.

Robert, correct my interpretation, but it seems to be a side-run into having a carbon tax?

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Yes, it's a close cousin to a carbon tax. Less efficient than a carbon tax, however, because it only taxes the electric industry, and because it doesn't tax an inefficient coal plant more than an efficient one.

I don't get the biomass 'exception' since biomass probably won't ever be viable from the carbon emissions perspective.

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Because biomass releases carbon that has only been recently sequestered by plants, its carbon emissions aren't as directly adding to the global carbon load as fossil-fuel emissions. That's the theory, anyway; there has been some recent research suggesting that the carbon cycle in biomass is decades long.

I really like the gradual imposition, I don't like exempting smaller producers. Seems the line should be significantly moved there. Muni and coops seems to already have a market advantage in a lot of places.

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I like the gradualism, too; this is an important problem, but the solution doesn't have to be imposed tomorrow. The gradual increase allows time for evolving technology and the orderly replacement of investments. The bill doesn't exempt small producers, it exempts small load-serving utilities. This makes no sense from an economics POV, but it's very sensible from a political POV -- these hometown, customer-owned utilities can cause a lot of ruckus, and the American Public Power Association does a good job lobbying.

An overall improvement, and impressive given the hate-to-do-anything-constructive mentality pervading the capitol these days. Wish it could be better, but I'll take improvement over the current status quo.

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Agreed on both sentiments. This bill is DOA (a friend of mine in the White House agrees), but it can open up the debate.

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